Nib Insurance, Bank Venture on Novel Premium Financing Scheme


December 11 , 2021
By BERSABEH GEBRE ( FORTUNE STAFF WRITER )


The financial institutions under the brand "Nib" have rolled out an insurance premium financing facility where the Bank pays annual premiums on behalf of taxi owners and public transport vehicles unable to afford a lump sum for motor and life insurance policies. Executives of Nib Insurance and Nib International Bank hope to see policyholders make instalment payments of between 25 and 45 Br daily.

The insurance premium financing facility was launched on December 9, 2021, at the headquarters of Nib Bank.

Although common in many countries, the insurance premium financing scheme is a new product for the Ethiopian financial sector.

“The facility allows customers to spread the cost of insurance over the term of the loans," said Abrham Mersha, deputy general manager of operations at Nib Insurance.

Nib's experts took nearly a year to conduct a feasibility study for the new venture.


Owners of vehicles operating for less than 30 years are eligible for the financing facility. The insurer plans to collect up to 20 million Br in premiums annually from 2,000 policyholders who own code-1 and code-3 vehicles used for transport purposes.

“Nib Bank will provide credit to cover the cost of the insurance product with low-interest rates,” said Genene Ruga, president of Nib International Bank.

Incorporated last year with a capital of 100,000 Br, Gasha Commission Agent is contracted with promoting and sell insurance products and services to potential buyers. The company approached senior managers of Nib Insurance and Bank with the idea of a premium financing facility, disclosed Abel Hailemariam, major shareholder and general manager of Gasha Commission Agent.

One of the new premium financing facility targets is Girum Werkalemahu, secretary of Fikir Taxi Association. Girum, who owns a minibus taxi, represents the association of 650 members. Thirteen associations represent 5,400 blue and white minibuses in Addis Abeba.


“We don’t know anything about motor insurance except for third-party policies,” he said.


However, Girum is willing to consider buying a motor insurance policy if affordable.

The third-party motor insurance policy had been mandatory for all vehicles since its introduction a decade ago. It covers medical treatment to any third party for death or bodily injury and covering property damage. Annual premium rates vary from 188 Br for motorcycles to 2,700 Br for cross-country buses. However, the annual premium rates for other motor insurance policies reach five percent of the vehicle's value. Nib Insurance offers three motor insurance policies besides compulsory third party insurance.

Motor insurance, categorised under the general insurance business, takes the lion’s share of the insurance industry’s premium portfolio, accounting for close to 55pc. Last year, the gross written premiums of the general insurance business grew by 22pc to 10.6 billion Br. Nib Insurance's gross written premiums from the general insurance business reached 505.9 million Br last year, exhibiting an 18.3pc growth. The premiums generated from the motor class of business account for 52.8pc of the total.

The motor class of business is also the major contributor to insurance firms' rising claims and administrative costs. Claims from the general insurance business increased by three percent last year to reach four billion Birr.

Nib Insurance, incorporated in 2002, paid out 273.7 million Br in claims last year, with the motor class of business accounting for nearly 60pc. Growing traffic accident numbers and the rising cost of spare parts are primarily to blame for the increase in claims. There are 1.3 million vehicles registered in the country, with close to 70pc operating in the capital.


Ebsa Mohammed, a consultant in the insurance industry, observes that the motor class of business poses a high risk for firms.

“However, Nib can benefit from the new scheme if it can manage to attract policy buyers," he said.

Ebsa does contend that the premium financing facility can positively impact the undeveloped long-term (life) insurance business. Accounting for close to seven percent of the industry's total written premiums, the growth of the long-term insurance business has been insignificant until recently. It rose by 65pc last year and reached close to one billion Birr. Eleven of the 18 insurance firms are engaged in the long-term insurance business.

Zufan Abebe, CEO of Nib Insurance, agrees that premium financing would be a valuable tool in expanding the reach of life insurance.

“Innovative insurance policies are needed to improve the low insurance penetration rate,” she said.



PUBLISHED ON Dec 11,2021 [ VOL 22 , NO 1128]


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